Dear Gordon Alistair,

Firstly I would like to say thank you for giving me the opportunity to lead the Bank of England for another term. Now that I am securely in post, I feel I can relax a little and say more of what is on my mind. Of course that may not sit comfortably with you but I am sure you agree that I have to be seen as independent from the Government, which may entail the odd snippet of bad news.

Speaking of bad news, it looks like I am going to have to keep interest rates at the current levels. In fact, I may have to raise them if prices continue to rise.

One the positive side, banks will be able to make higher profits by borrowing short and lending long and the consumer still doesn’t understand that inflation causes rising prices rather than the other way around. I am sure the Prime Minister will see that with prices rising and wage levels stagnating, the Bank of England is able to conduct the wealth withdrawal policy that his government had to drastically reverse the other day.

On balance it could be seen that the current “inflation” that is reducing consumer discretionary spending is a net offset from the re-introduced tax hand outs. This can only be good for the medium term. Indeed if further public monies are introduced into the economy, a counterweight rise in inflation would be welcomed by big business and banks.

We must however ensure that the public is not surprised by this redistribution of wealth from the poor to the rich. Therefore a continuing blizzard of pro-inflationary propaganda should be encouraged until the public shows signs of capitulation. By then we fully expect most banks to have recapitalised their reserves.

A good example of how to accomplish this is the following quote, where we blame the end of the good times on a bumpy road, rather than the policies of the Bank or the Government:

• “The Monetary Policy Committee is facing its most difficult challenge yet,” King told reporters in London today. “We are traveling along a bumpy road as the economy rebalances. Monetary policy shouldn’t try to prevent that adjustment.” It “must focus on bringing inflation back to the target in the medium term.”
  The Bank of England has been reluctant to cut rates as fast as the Fed, which has reduced its benchmark seven times since September, for fear of stoking inflation too much.
  “We did not fall prey to the sirens to cut interest rates further as some other central banks have done,” King said. (Bloomberg)

This helps the public to focus ahead, rather than reviewing past actions and deflects attention from any current policy “mistakes”. I would congratulate Caroline Flint for the marvellous placement of the “bad housing outlook” into the public’s mind, a masterstroke of using the paparazzi combined with product placement. She should be considered for advancement.

As you can see from my statement, I have ruled out doing anything to help the situation. Instead I have pointed out how dangerous such action would be and how it might stop me from focussing on inflation. Of course the icing on the cake is the threat of one or two periods of negative growth. Some call it recession, it’s a very good tactic to use when you want to put the skids under job prospects. It helps keep wage demands down.

All in all, I think the policy of stripping wealth out of the general economy and concentrating it amongst the banks and financial institutions is going well. The only fly in the ointment is the stubborn refusal of gold to climb to new highs. As long as the public don’t notice this counter indication, the policy should still run smoothly.

It is at this point I have to warn you that the following chart should have a 30 year gagging order placed upon it. As you can see, we think inflation is peaking, if the public find out and decide to start saving, gathering higher interest now to use in a “cheaper” future environment, we could ignite a consumer spending deflation pattern. Of course we would have to blame the instability in Government taxation policies for causing such a scenario.

Yours,

Merv.

PS. Inflation is above 3%.

Commentary by Mick Phoenix

on behalf of CA Letters

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